CRS, FATCA and Offshore Trust Disclosure: What Trustees Must Report

The End of Offshore Secrecy

The Common Reporting Standard (CRS) and the Foreign Account Tax Compliance Act (FATCA) have fundamentally transformed the offshore trust industry. Since the implementation of CRS in 2017-2018 and FATCA in 2014, offshore trustees are required to identify the tax residence of all persons connected to the trust and report account information to the relevant tax authorities — automatically, annually, and without the account holder's consent.

The era of undisclosed offshore trusts is over. Any trust professional who suggests otherwise is misinformed or dishonest. The question is no longer whether the trust will be disclosed, but what exactly is reported, to whom, and what the consequences are.

FATCA: The US Framework

What FATCA Requires

FATCA (enacted as part of the HIRE Act 2010, codified in IRC sections 1471-1474) requires foreign financial institutions (FFIs) to identify and report US account holders to the IRS. The penalties for non-compliance are severe: a 30% withholding tax on US-source payments to non-compliant FFIs.

Are Offshore Trusts FFIs?

Under FATCA, a trust is classified as either:

• A financial institution (if it is an investment entity — i.e., its primary business is investing, reinvesting, or trading financial assets, and it is managed by another financial institution), or
• A non-financial foreign entity (NFFE) (if it does not meet the financial institution definition)

Most offshore discretionary trusts managed by professional trust companies are classified as investment entities and therefore FFIs. They must:

1. Register with the IRS and obtain a Global Intermediary Identification Number (GIIN)
2. Conduct due diligence on all account holders (settlors, beneficiaries, protectors) to identify US persons
3. Report US accounts annually on Form 8966 to the IRS (or to the local tax authority under an Intergovernmental Agreement, which then exchanges the information with the IRS)

What Is Reported Under FATCA

For each US reportable account, the trustee must report:

• The name, address, and US Taxpayer Identification Number (TIN) of each US person
• The account number
• The account balance or value at year-end
• The total gross amount of income (dividends, interest, other income) credited to the account during the year
• The total gross proceeds from the sale or redemption of property credited to the account

Intergovernmental Agreements (IGAs)

Most offshore jurisdictions have signed IGAs with the United States, which streamline compliance:

• Model 1 IGA (Jersey, Guernsey, Cayman, BVI, Isle of Man): The FFI reports to its local tax authority, which exchanges the information with the IRS
• Model 2 IGA (Bermuda, Switzerland): The FFI reports directly to the IRS with the consent of the account holder

CRS: The Global Framework

What CRS Requires

CRS, developed by the OECD and endorsed by the G20, is a global standard for the automatic exchange of financial account information between tax authorities. As of 2025, over 120 jurisdictions have committed to CRS, and over 100 are actively exchanging information.

Under CRS, reporting financial institutions must:

1. Identify the tax residence of all account holders and controlling persons
2. Report account information for persons who are tax-resident in a CRS-participating jurisdiction
3. Report annually to the local tax authority, which exchanges the information with the account holder's jurisdiction of tax residence

How CRS Applies to Trusts

Under CRS, a trust is typically classified as either:

• A reporting financial institution (if it is an investment entity managed by another financial institution), or
• A passive non-financial entity (passive NFE) (if it does not meet the financial institution definition — for example, a trust that holds only real estate or non-financial assets)

If the trust is a reporting financial institution, the trustee must report on its "account holders." For a discretionary trust, the account holders are:

• The settlor (always reportable)
• The trustee (always reportable)
• The protector (always reportable)
• The beneficiaries (reportable if they receive distributions during the year, or if they have a vested entitlement)
• Any other natural person exercising ultimate effective control over the trust (always reportable)

If the trust is a passive NFE, the financial institution that maintains the trust's account (typically the bank or custodian) must report on the trust's "controlling persons" — which includes the same categories listed above.

What Is Reported Under CRS

For each reportable account:

• The name, address, jurisdiction of tax residence, and TIN of the account holder
• The date and place of birth of the account holder
• The account number
• The account balance or value at year-end
• The total gross amount of interest, dividends, and other income credited during the year
• The total gross proceeds from the sale or redemption of financial assets credited during the year

The Wider-Approach vs Narrower-Approach

CRS allows jurisdictions to adopt either a "wider approach" or a "narrower approach" to reporting on trusts:

Wider Approach

All persons connected to the trust (settlor, trustee, protector, beneficiaries, and any other controlling persons) are reported to the tax authorities of their respective jurisdictions of tax residence — regardless of whether they received a distribution during the year.

Jurisdictions that have adopted the wider approach include: Jersey, Guernsey, Isle of Man, Cayman Islands, BVI, Bermuda, and Luxembourg.

Narrower Approach

Only persons who receive a distribution during the year are reported as account holders. Settlors, protectors, and non-receiving beneficiaries are not reported.

Fewer major financial centres have adopted the narrower approach, and the OECD has encouraged all jurisdictions to move to the wider approach.

Practical Implications for Trust Planning

No Hiding Place

Under CRS (wider approach), the tax authority of the settlor's jurisdiction of residence will receive:

• The identity of the trust and the trustee
• The value of the trust assets
• The income earned by the trust during the year
• The settlor's connection to the trust

This means the tax authority has full visibility into the trust structure — even if the settlor has not voluntarily disclosed the trust.

Beneficiary Awareness

Under the wider approach, beneficiaries who are tax-resident in CRS-participating jurisdictions will be reported — even if they have never received a distribution and may not even know the trust exists. Trustees must consider the implications:

• Beneficiaries may receive enquiries from their local tax authority
• Beneficiaries may discover the existence of the trust through the CRS reporting process
• The trustee should consider notifying beneficiaries in advance that they may be reported

Protector Disclosure

The protector's identity and tax residence are reported under CRS. For protectors who value privacy, this is a significant change. There is no exemption for protectors — even if the protector has no financial interest in the trust.

Multiple Reporting

A single trust may generate reports to multiple tax authorities. If the settlor is UK-resident, a beneficiary is French-resident, the protector is Swiss-resident, and the trustee is Jersey-based, the Jersey tax authority will exchange information with HMRC, the French Direction Générale des Finances Publiques, and the Swiss Federal Tax Administration.

CRS Avoidance Arrangements

The OECD has published guidance on "CRS Avoidance Arrangements and Opaque Offshore Structures" and maintains a list of arrangements that it considers to be designed to circumvent CRS reporting. These include:

• Holding assets through non-reporting entities (certain types of holding companies) to avoid CRS reporting
• Establishing trusts in non-CRS jurisdictions to avoid reporting
• Using insurance products or prepaid cards to hold assets outside the CRS framework
• Relocating to a non-CRS jurisdiction to avoid being a reportable person

Jurisdictions that have adopted the Mandatory Disclosure Rules (MDR) require intermediaries to report these arrangements to the tax authority, which may share the information with the OECD.

Penalties for Non-Compliance

Trustees who fail to comply with CRS or FATCA obligations face:

• Financial penalties: Fines imposed by the local tax authority (e.g., up to GBP 300 per account per year of non-compliance in Jersey, plus potential penalties for deliberate non-compliance)
• Regulatory sanctions: The JFSC, GFSC, CIMA, or BVI FSC may impose regulatory sanctions, including suspension or revocation of the trust licence
• FATCA withholding: Non-compliant FFIs face a 30% withholding tax on US-source payments
• Reputational damage: Being identified as non-compliant in a jurisdiction that takes CRS compliance seriously can be commercially fatal for a trust company

Key Takeaways

• CRS and FATCA ensure that offshore trusts are automatically disclosed to the tax authorities of all connected persons' jurisdictions of residence
• Under the wider approach (adopted by most major offshore centres), all persons connected to the trust — settlors, beneficiaries, protectors — are reported, whether or not they receive distributions
• FATCA specifically targets US-connected trusts, requiring registration with the IRS and annual reporting on Form 8966
• The information reported includes account balances, income, and the identity and tax residence of all connected persons
• There is no lawful mechanism to avoid CRS or FATCA reporting for trusts held in participating jurisdictions
• Offshore trusts remain effective for asset protection, succession planning, and investment management — but they are no longer effective for concealing assets from tax authorities
• Settlors must ensure full compliance with domestic tax obligations before and after establishing an offshore trust